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Unsure of What to Do With Your Extra Money? We Have Some Ideas!

Dec 1, 2022 Personal
what to do with extra money

Have you been working to save money and now have extra funds set aside? If so, you may be wondering what you should do with the extra money you have saved. You may be thinking of using the funds to pay down debt, invest in your future or simply enjoy some short-term pleasures. However, you choose to spend it, be sure to make the most of your hard-earned savings. Here are some helpful suggestions on how to best utilize your extra cash.

Create or Contribute to Emergency Fund

No one knows when an unexpected emergency will occur. That’s why it’s important to have an emergency savings fund to cover unforeseen expenses. If you don’t have enough money saved up to cover a major expense, you may have to resort to paying high interest. By setting aside a small amount of money each month, you can build up a cushion that will help you weather any storm.

Many people think the first thing they should do once they have saved money is utilize it to pay down debt. This is not necessarily true as the general advice is to save at least three months of living expenses and then move on to paying down high-interest debt.

Pay Down High-Interest Debt such as Credit Cards

Did you know that one of the smartest things you can do with your extra money is pay down high-interest debt? High-interest debt refers to any type of loan or credit card balance that has an annual percentage rate (APR) that is higher than what you are currently paying on other debts. For example, if you have a $10,000 balance on a credit card with a 20% APR and are only making the minimum payments each month, it will take you over nine years and cost more than $4,000 in interest to pay off the debt. However, if you were to put an extra $100 per month towards paying down the balance, it would only take three years and cost less than $1,200 in interest to pay off the debt. That’s a huge difference!

Paying down high-interest debt should be one of your top financial priorities, as it will save you money in the long run. If you currently have high-interest debt, be sure to make room in your budget for extra payments each month and watch your debts disappear.

Fund Tax-Advantaged Accounts

Another wise thing to do with your extra money is fund tax-advantaged accounts. Tax-advantaged accounts include retirement accounts such as 401(k)s and IRAs, as well as health savings accounts (HSAs). All of these accounts offer tax benefits that can save you a lot of money over time.

For example, contributions to 401(k)s are made with pre-tax dollars, which means that you will pay less in taxes each year. This is especially beneficial if you are in a higher tax bracket. In addition, many employers match employee contributions up to a certain amount, which is essentially free money. Retirement accounts and HSAs should also be high on your list of priorities when it comes to funding tax-advantaged accounts. Similarly, HSAs offer triple tax advantages: contributions are made with pre-tax dollars, earnings grow tax-free and distributions for qualified medical expenses are also tax-free.

Save for Other Goals

It’s never too early to start saving for your future. In fact, the sooner you begin, the more likely you are to reach your goals. That’s why it’s important to have a plan and set aside money each month to save for other important milestones in your life.

One of those milestones may be buying your first or next home. Homeownership is a major accomplishment and can provide many benefits such as stability, equity, and tax breaks. However, buying a home can be expensive, which is why it’s important to start saving now.

If you want to buy a home in the near future, be sure to make room in your budget for extra mortgage payments each month. By doing so, you will be able to reduce the amount of time it takes to pay off your mortgage and save yourself thousands of dollars in interest charges.

Homeownership may not be right for everyone, but that doesn’t mean you shouldn’t save for it anyway. There are many other things you can save for such as retirement, vacations or even a new car. The key is to have a plan and follow through with it no matter what life throws your way.

Explore Investment Options*

Saving money is a smart thing to do, but it’s even smarter to invest that money in order to grow it over time. There are many different investment options available, and it can be difficult to decide which one is right for you. However, by exploring a few different options, you can find the right investment for your needs.

Stocks

One option for investing your money is through stocks. When you buy stocks, you are buying a piece of a company that will give you ownership in that company. In most cases, stocks offer the potential for high returns over time as long as the company continues to do well financially.

Mutual Funds

Another option for investing your money is through mutual funds. Mutual funds are collections of stocks or other investments that are managed by a professional fund manager. This option typically offers less risk than buying individual stocks, and many mutual funds have historically outperformed the stock market as a whole.

Bonds

There are also several types of bonds available for investment, including corporate bonds, government bonds, and municipal bonds. Bonds are loans that are given to companies or governments in exchange for periodic interest payments and the return of the original loan amount on maturity. Bonds can be a great way to provide stability to your portfolio.

Now that you know what to do with your extra money, it’s time to get started! Begin by exploring a few different investment options and find the one that is right for you. Then, start saving for your future today. Whether you’re saving for a down payment on a home, retirement, or another goal, be sure to have a plan and stick with it. By doing so, you will be well on your way to reaching your financial goals.

*NOTE: BankSouth does not offer financial advising as a service. The content on this blog and website is for informational purposes only. To make the best financial decision that best fits your needs, you must conduct your own research and/or seek the advice of a licensed financial advisor if you feel that is best.

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